FAB Use Case: Real Estate
In this series, we tackle different potential use cases of Fast Access Blockchain and how we can build a better world through our solutions.
New Applications, New Business Models, New Possibilities
Applications which are an ideal fit for blockchain technology have the following characteristics:
- Involve multiple organizations
- Where trust is key, or trust is presently severely eroded
- Proof is key
- Involve exchange/transfer of assets or value
- Involve data sharing or presently suffers from silo’d data
- Benefit from micro transactions/streaming
- Have opportunities for new business models, products or services
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A large area where blockchain can have an immediate impact is in funds escrow for real estate investments. When funds generated by a property are distributed back to investors it is usually done through moving funds from the property account to another account that sends the funds through ACH, wire transfer, or a trust back to the investor.
The issue with this current way of doing business is that the funds are initially held by the property firm instead of the investors. If the firm was to misappropriate the funds or go out of business, it is possible for investors to lose access to their funds.
A Blockchain based system could use smart contracts to simply register the distributions and automate them.
Blockchain based leasing could have several positive advantages. A report from Deloitte in 2018 outlined several potential uses and advantage a blockchain portal for leasing could create including:
- a decentralized and accurate listing site;
- currently many use a series of websites to find listings including Craiglist, Zillow and even MLS (which requires a fee). Fragmented and sometimes inaccurate data makes the process inefficient.
2. streamline the paper driven and inaccurate due diligence process for finding tenants;
- the current mostly-paper process is rife with loss of information, misinformation and wrong due diligence. Using a blockchain based digital identity system would improve lease information management and ease the due diligence process
3. create a due diligence process for choosing landlords and property management companies;
- It is currently almost impossible to find information on small landlords, a blockchain based system would create profiles for landlords that could include post-lease ratings by tenants
4. automate payments and cash flow management through smart contracts;
5. create and sign lease agreement through smart contract and store on blockchain
6. data analysis possibilities with tracked data
Land Title Registry
Management of land title registries and real estate transactions are complex processes involving many parties (governments, owners, buyers, lawyers, real estate agents, banks, insurance companies, etc).
In developed countries where property rights are protected by a strong legal system, the primary pain points are long delays and high costs involved in transactions. It can take anywhere from several weeks to several months for settlement of a transaction. All the stakeholders have different complex processes in order to protect themselves or whom they represent, adding to the delay.
In these mostly paper based processes, the costs of title registration, title insurance and legal fees are relatively high. Even with this, cases of real estate fraud (including title fraud and mortgage fraud) still occur.In Canada, for example they have been on the rise due to rapidly increasing real estate values.
Currently, blockchain-based land registry systems are being set up to pilot in several jurisdictions including Ghana, Russia, Illinois, and Vermont.
In developing nations with weak property rights, large populations of people don’t have proper title to their land. If they do, they cannot defend their title or it is taken away from them due to corruption. As a result they are often driven off their land, or they cannot leverage their property to obtain a loan, and continue to live in poverty.
Again we see a recurring theme, the need for a shared immutable ledger, trust between multiple entities to perform secure transactions, and processes which are high in friction, just ripe to be disrupted by a blockchain application. A blockchain based land registry system could allow for faster and more transparent transactions, allow all stakeholders to verify documents securely online, increase the reliability and redundancy of the land registry data, drastically reduce fraud, reduce the need for title insurance, and protect rightful owners in countries with previously weak property rights.
Smart contract capabilities can be used to automate parts of the process including transfer of funds. With blockchain-enabled authentication of identities, transactions could be performed entirely online from anywhere on line.
Furthermore, the system could be extended to reduce friction in follow on transactions associated with the property, for example between landlords and renters, as well as utility companies like electricity and water.